FREE

NIGERIAN BREWERIES PLC 9M'17 - Earnings lag amidst elevated costs

Earnings lag amidst elevated costs                                                                         

Nigerian Breweries PLC (NB) released its 9M’17 results today showing a 14% y/y rise in top line to ₦254.7 billion – largely in line with Vetiva estimate. Stronger prices remained the major top line driver and according to management, marginal price increases were further implemented across select brands at the start of Q3’17. In response to this and amidst still weak consumer sentiment, volumes declined mid-single digit y/y - even as feeble performance from premium brands continues to weigh on the overall product mix. Whilst we expect the price increase to continue to cap volume growth, we believe volume will be supported by festive season in Q4. We expect NB to turn in a decent quarterly revenue figure of N93 billion (Previous estimate: ₦91 billion) - bringing FY’17 revenue to ₦348 billion (11% higher y/y).                                                                       

Amidst elevated production costs, gross margin for 9M’17 came in narrower at 42%, lower than our 45% expectation and prior year’s 44%. Deviating from recent trend as well, Operating expenses to sales ratio for 9M’17 was 193bps higher than Vetiva estimate of 26% (H1’17: 24%), following a 22% q/q rise in Administrative expenses. Whilst finance costs came in below the ₦10 billion from 9M’16, it was 11% higher than our expectation following a rise in borrowings to N28 billion (H1’17: N13 billion) and an additional ₦1.3 billion FX loss (Total 9M’17 FX loss: ₦5.0 billion). This resulted in 9M’17 bottom line coming in 28% below our estimate at ₦24 billion, albeit 19% higher y/y given the low base from 2016. We revise our FY’17 PAT expectation lower to ₦34 billion (Previous: ₦45 billion) – implying an 18% y/y growth on prior year’s low base. Overall, we revise our FY’17 total DPS estimate lower to ₦4.06 – translating to dividend payout of 96%. Our 12-Month Target Price is revised lower to ₦115.23 (Previous: ₦120.72).                                                                        

Nigerian Breweries Plc (NB) is the largest brewer in Nigeria and the second largest listed company on the Nigerian Stock Exchange. Following the merger with Consolidated Breweries effective December 2014, parent company, Heineken maintains a 54% controlling stake in the larger entity. NB dominates Nigeria’s brewery market with a 65% market share and a brand portfolio that includes lager beer, stout beer, non-alcoholic malt drinks, carbonated soft drinks, ready-to-drink and bitters brands.